Buying Real Estate in New York- What to Expect
So, you made a choice and decided what type of real estate to buy. That’s great news! Now, all you have to worry about is paying for it- which can be daunting, to say the least. While you get your finances in order, read ahead for the process between making an offer and moving into your dream home.
*This post will not discuss simple, cashless transfers among relatives, estates, short sales, etc., and will only deal with straightforward purchase/sale transactions from one individual to another wherein money is exchanged for ownership of property and the services of real estate brokers and attorneys are used to facilitate the deal.
Furthermore, this post will address the following common terms, for which a definition is listed as follows:
Contract of Sale: Legal Agreement for purchase of assets in exchange for money.
Title Report/Lien Search: Report detailing ownership, vesting and recording of documents against property, such as mortgages, liens, encroachments and easements.
Mortgage/Loan: Extension of funds by a bank for a purchaser to buy property by placing a lien against the property until the sum is paid back in full.
Closing: Final step of a transaction wherein ownership is transferred to the purchaser.
The closing process in New York can seem overwhelming but it is actually pretty standard. Regardless of the type of property, some parts of the process do not change and apply to every purchaser, seller and property. For example, all New York property requires a Contract of Sale to transfer from one individual to another. However, each type of property has a slightly different path to clear before getting to the closing table.
The standard procedure for purchasing property is as follows:
Purchaser Seller
1. Find the property and make an offer 1. Put the property on the market and accept an offer
2. Agree to and sign the Contracts of Sale 2. Agree to and sign the Contracts of Sale
3. Leave a predetermined Deposit/Downpayment 3. Make sure that title is clear and ready to transfer
4. Put together financial documents for loan 4. With loan, order documents from bank’s attorneys
5. Receive loan approval, commitment and clear to close 5. Empty the property and leave it broom cleaned
6. Appear at closing and sign transfer documents 6. Appear at closing and sign transfer documents
7. Pick up the keys and move in! 7. Hand the keys to the new owner!
Beyond the above, getting to the closing table has a couple of extra steps that are exclusive to each individual situation. Many of the steps deal with a mortgage to obtain for the purchaser, or a mortgage to payoff for the seller. Not all purchases require mortgages and can be finalized instead with cash; and not all sales have a mortgage to pay off. As such, this post will discuss transactions with and without loans on both sides of the deal.
Because a Single Family House is private and exclusive to the owner, the owner is in possession of their Deed or title. If the property has a mortgage already on it, the owner or his/her attorney would order a payoff statement from the lender indicating the amount of the loan remaining to be paid off at closing. This amount is paid directly by the purchaser or his/her mortgage and eliminates the seller’s responsibility and debt to the property. If there is no loan and the property is owned outright, there is no payoff to be obtained. The purchaser’s attorney would order a Title Report and check the property for liens or issues to clear. This is the point in the transaction where questions about property lines, land easements or real estate taxes are answered with the Report, and violations or liens against the property are dealt with and cleared. Inspections like a survey, which is a detailed study of the property, or an appraisal, which is an opinion of value of a property, are ordered and conducted, if needed, and further help to answer any lingering questions that might arise. Depending on the circumstances, the costs of these reports are commonly paid by the purchaser. Unless decided otherwise, the seller is responsible for any outstanding property taxes remaining for the tax period up and through the day before the closing, and the purchaser assumes responsibility from the date of the closing forward. The same applies to any outstanding water utility charges due. The only service transferred in the transaction is the water, which is managed by the city and is done with transfer tax documents that are prepared by the seller’s attorney, or the title company, and are executed at closing. All other services, such as electricity, cable, etc., are the responsibility of the seller to close (or transfer to a new location), and the purchaser to open (or transfer from a previous location). Because houses do not typically belong to Homeowner’s Associations, there is no approval required to close. As such, as soon as a purchaser’s financing is in order and title has been cleared, the parties can close on the first mutually convenient date available. Closings for houses are typically conducted in the seller’s attorney’s office if there is no loan; or the lender’s attorney’s office if there is a loan.
A Condominium and a Townhouse have the same closing process as house in that their owners also retain possession of the Deed; and a title report is ordered to confirm the property is free of liens. Unlike a House however, condos and townhouses have common charges or dues paid monthly to the Homeowner’s Association, as well as property taxes paid by the owner directly to the city. These are calculated in the way House closings calculate the property taxes remaining: unless decided otherwise, the seller is responsible for any common charges or dues and remaining property taxes up and through the day before the closing, and the purchaser assumes responsibility from the date of the closing forward. The same applies to any outstanding water utility charges due, if applicable. Additionally, closings for condos and townhouses are typically conducted in the seller’s attorney’s office if there is no loan; or the lender’s attorney’s office if there is a loan.
The one main difference between buying/selling a condo and a townhouse is that condos require a Right of First Refusal to be executed by the Condominium Corporation, which is an acknowledgement that the corporation has the right to purchase the unit being sold before any individual person. Their execution of the form indicates they are waiving their right to purchase and allowing the sale to move forward. Townhouses do not require that.
Like condos and townhouses, Cooperative Apartments calculate the monthly maintenance payments at closing in the same manner. Unless decided otherwise, the seller is responsible for the monthly maintenance up and through the day before the closing, and the purchaser assumes responsibility from the date of the closing forward. Additionally, some cooperative corporations also institute a Flip Tax, which is a fee due to the corporation for the sale of a unit. Each corporation and building is different and therefore, the flip tax- if any- may be calculated differently, such as: a fixed percentage of the purchase price; a dollar amount times the number of shares; a fixed dollar amount; or in some cases, no flip tax is charged at all. Commonly, this fee, if applicable, is paid by the seller unless the parties decide otherwise or the corporation has a different requirement.
Because shareholders of a coop unit own shares and are given a Stock Certificate and Proprietary Lease or Occupancy Agreement as proof of ownership, mortgages on these units are handled slightly differently. Similar to a vehicle financed with a bank, the Collateral Documents (which consist of the Stock Certificate along with the Proprietary Lease or Occupancy Agreement) are retained by the attorneys for the bank that holds the loan. The shareholder receives a copy of the documents at closing until the loan is paid off, at which time they are sent the originals and the satisfied loan is closed. In the case of a coop unit with an existing mortgage being sold, the seller’s attorney would contact the bank holding the loan to order the collateral documents. This is done far in advance because it normally takes anywhere from 4-8 weeks to pull the file and prepare it to close. This is why it is so important for a seller of a coop unit to notify their attorney early in the transaction that there is an existing loan to pay off and collateral documents to order.
Coops also require board approval for the sale. Sponsor units, which are units that are owned and sold directly by the cooperative corporation itself, do not require board approval, but all other units do; and as such, a purchaser must submit a board application to undergo the approval process. Usually, the real estate broker working with the purchaser would assist them in putting the application packet together to ensure it meets the required guidelines. These packets often include the application itself, credit history, financial information, tax returns, income verification, etc. Sometimes the seller is required to provide information on the unit being sold, such as proof of a Bedbug Inspection or a form consenting to the sale. After submitting the board application, the building’s managing company processes the application packet and delivers it to the board, who then reviews the application packet and scheduled a board interview with the purchaser. Some boards meet only on certain days of the month, so it can take some time to receive an interview date. Once a purchaser finishes an interview, the board deliberates and usually hands down a decision within a few days. If approved, the board then notifies the managing company and forwards the application to them for processing, which usually takes about 1-2 weeks. When finished, the managing company forwards the packet and the closing documents prepared to the cooperative corporation’s attorney’s office, who is called the Transfer Agent. When the transfer agent is in receipt of the documents and is ready to close, the parties can schedule the closing.
Because coops have many more steps and parties involved in the closing transaction, the closing often takes longer to schedule than it does for houses, condos or townhouses. For coops, the transfer agent conducts the closing, and it is scheduled according to their availability. Commonly, transfer agents do not close before 10am or after 3pm on weekdays; and some offices do not conduct closings on Fridays due to bank availability. When the transfer agent provides their availability, the attorneys for the parties agree on a mutually convenient closing date and notify all of the parties involved. If there is a loan to be paid off, the payoff bank’s attorney is also notified and delivers the collateral documents to the closing. These are the documents that will transfer ownership from the seller to the purchaser. They are executed by the seller and purchaser at closing, and sent to be recorded with the city or county in which the property lies.